BUSINESS LAWS AND

REGULATIONS – PARTNERSHIPS
Third Trimester, Schoolyear 2021 - 2022

Atty. Manuel R. del Rosario

 KINDS OF PARTNERSHIPS

1. Universal Partnership of All Present Property

1.5 Partnership of Some Property
2. Universal Partnership of All of the Profits (Nagpahiram ng
property)
3. Partnership for a Specific Purpose
4. Partnership for a Fixed Term

1, 1.5 and 2 are called “partnerships at will” – continuing nature –

tuloy-tuloy

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 (1) UNIVERSAL PARTNERSHIP OF ALL PRESENT
PROPERTY vs. (2) UNIVERSAL PARTNERSHIP OF
ALL OF THE PROFITS

A universal partnership may refer to (1) all the present

property or (2) all of the profits (1777).

A universal partnership of all present property is NOT

presumed. If the articles are silent, it is a universal partnership
of profits only (1781)

A universal partnership of all present property is when the

partners contribute all their property to a common fund with
the intention of dividing the same among themselves as well
as the profits they may acquire (1778).

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 (1) UNIVERSAL PARTNERSHIP OF
ALL PRESENT PROPERTY

The separate property of one partner will now become common

property of the partnership from the time the partnership is formed,
as well as all the profits which they may acquire (1779).

EXAMPLE: Atty. Marvin and Atty. Julia decided to form a legal

partnership. Atty. Marvin decided to contribute a condominium unit in
Pasig City and Atty. Julia contributed P2,000,000 in cash.
The partnership is now the owner of the condominium and the
P2,000.000 because there is transfer of ownership. Very onerous or
burdensome. Binigay ni Atty. Marvin ang condominium sa partnership.

NOTE: Future property acquired by the partners are not included in

the universal partnership since it involves present property only.

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 (2) UNIVERSAL PARTNERSHIP OF
ALL OF THE PROFITS

A universal partnership of profit (1780) comprises

everything the partners may acquire by their industry or
work during the partnership’s existence.

Property owned by the partners shall continue to pertain

exclusively to each during the partnership. THERE IS NO
TRANSFER OF OWNERSHIP OF THE PROPERTIES.
The partnership may use the property to generate income
or profit, but ownership remains with the original owner

Universal Partnership of All of the Profits is LESS

BURDENSOME.

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 (2) UNIVERSAL PARTNERSHIP OF
ALL OF THE PROFITS

EXAMPLE OF PARTNERSHIP OF ALL OF THE PROFITS: the

Marvin and Julia Law Office utilized the condominium unit owned
by Atty. Marvin as their office. They also used furniture, computers
and office equipment contributed by Atty. Julia.

The condominium is still owned by Atty. Marvin. The furniture,

computer and office equipment are still owned by Atty. Julia.
Nagpahiram ng property.

USUFRUCT: the temporary use and enjoyment of another's

property with the basic obligation of preserving its form and
substance and returning it at a designated time.

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 SETTING UP A PARTNERSHIP (3) FOR A SPECIFIC
PURPOSE OR (4) FOR A FIXED PERIOD

Generally, once a partnership is established its existence continues until its

dissolution.

However, a partnership may also be constituted for (3) a specific purpose

only or (4) or a fixed period of time.

EXAMPLE (3): Jose, Merlin and Bryan constituted a partnership for the
sole purpose of buying an old house and lot, improving the same and then
selling it for a profit. Once the house and lot is sold the partnership ends.
This is called a particular partnership or a partnership for a specific purpose
(1783). It is a partnership even if it involves only a single transaction.

EXAMPLE (4): Atty. Jake and Atty. Tips are new lawyers. They decided to
put up a Law Office for a period of 5 years only so they can learn the ropes
of law practice. After 5 years the partnership will end, and they will close
the Law Office and they will go their separate ways. This is a partnership
for a fixed period.

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(3) PARTNERSHIP FOR A SPECIFIC PURPOSE
AND (4) PARTNERSHIP FOR A FIXED TERM

In case a partnership is continued AFTER the accomplishment of

the specific purpose or AFTER the end of the fixed term, the
rights and duties of the partner remain the same as originally
agreed upon (1785).

HOW DO WE PROVE THIS? If any of the partners continued

to conduct business or continued to act like a partner even after
the specific purpose has been achieved or after the fixed term
has expired, this is prima facie evidence that the partnership
continues.

Prima facie – based on first impression, accepted as correct

until proven otherwise

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 CONTRIBUTIONS TO A NEW PARTNERSHIP

Jose, Merlin and Bryan, who are all CPAs, wanted to form a
professional partnership to practice accounting. They have several
options:

a. They can contribute ALL their present property to the

partnership common fund. This means that the partnership will
own ALL the properties transferred;

b. They can contribute SOME but not all of their present property
to the partnership common fund. This means that the
partnership will own ONLY the specific properties transferred;

c. If it is a partnership of ALL of the profits, properties are

contributed to the partnership common fund, but ownership is
NOT transferred (see earlier slide). Usufruct only.

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OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES

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 PARTNERSHIP RELATIONS

A partnership gives rise to several juridical relationships:

a. Among the partners themselves;

b. Between the partners and the partnership (because the
partnership has a separate juridical personality);
c. Between the partners and third persons (includes the
government);
d. Between the partnership and third persons.

THREE PLAYERS: Partners, Partnership and Third Persons

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 RELATIONSHIP AMONG PARTNERS

Any partner who promises to give or contribute something to the

partnership becomes a debtor of the partnership. This contributor is
also bound for warranty in case of eviction (1786). A partner must
comply with his or her undertaking under the Articles of Partnership.

EXAMPLE 1: Jose, Evelyn and Tessie entered into a partnership (JET)

to grow dragon fruit. Jose provided the 3 hectare farmland and Evelyn
and Tessie provided money for planting expenses. After one year, the
partnership was evicted from the land. It turns out Jose was not the
real owner of the property. In this case Jose is liable to pay damages
to the partnership by reason of its eviction
from the farm.

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 RELATIONSHIP AMONG PARTNERS

EXAMPLE 2: Jose, Evelyn and Tessie entered into a partnership

(JET) to grow dragon fruit. Jose provided the 3 hectare farmland
and Evelyn and Tessie promised to provide P1,000,000 each for
planting expenses. Evelyn was able to give her P1,000,000
contribution but Tessie failed to do so. Tessie is liable to give the
money (specific performance) and pay interest (legal interest rate is
6% p.a.) and damages for the delay (1788)

EXAMPLE 3: Tessie used P100,000 from the partnership money

supposed to be used to buy fertilizer and she used this for her son’s
tuition fee payment. Tessie becomes a debtor of the partnership
from the time the money was used for this unauthorized purpose

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 INDUSTRIAL PARTNER CANNOT ENGAGE
IN ANY KIND OF BUSINESS FOR HIMSELF

An industrial partner does not contribute any money or property to the

partnership but rather he promises to contribute his energy, effort, labor
and industry. The partnership has an exclusive right to his services (1789).

EXAMPLE: Peter, Paul and Mary are CPAs. They put up a partnership with
Peter and Paul contributing money and Mary contributing her service since
she did not have money to contribute. Can Mary teach Accounting subjects
at a local college? Following Art. 1789 the answer is NO.

LEGAL ADVICE: If we want to allow an industrial partner to engage in

some unrelated business activity, we should place clearly in the Articles of
Partnership what the industrial partner can and cannot do. The Articles can
allow the industrial partner to engage in an unrelated business, for example
selling insurance or baking cakes for sale on
FB. Bottomline: Magpaalam sa partnership.

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 CAPITALIST PARTNER CANNOT ENGAGE IN THE
SAME OR SIMILAR PARTNERSHIP BUSINESS

EXAMPLE 1: Peter, Paul and Mary are CPAs. They put up a partnership
with Peter and Paul contributing money (capitalist partners) and Mary
contributing her services (industrial partner) since she did not have
money to contribute. Peter cannot engage in any accounting work. He
should refer all business to the partnership and not take them on in his
personal capacity. (1808) This is part of his fiduciary duty to the
partnership.

EXAMPLE 2: Can Peter engage in the hardware business? Yes.

EXAMPLE 3: Can Peter teach Accounting subjects at the University?

Yes, since this is not a business and there is no competition with the
partnership.

LESSON: Capitalist partners should not compete with the partnership

but can engage in an enterprise different from the partnership business.

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 OBLIGATION OF A PARTNER WHO
RECEIVED A SHARE OF A PARTNERSHIP CREDIT
A partner who received his share of a partnership credit, when the other
partners have not collected theirs, shall be obliged, if the debtor becomes
insolvent, to bring back to the partnership common fund what he received.
(1793)

EXAMPLE: Peter owed the partnership of Louie and Joseph (LJ) the sum of
P100,000. Louie and Joseph both had a 50% share in the partnership.

When Louie went to collect the debt, Peter said he only had P50,000 so Louie
gave a receipt saying that payment of the P50,000 was for his 50% share in
what Peter owed the partnership.

Later on, Peter was declared insolvent or bankrupt and Joseph could
no longer collect his P50,000 share (1/2) of the credit. Louie should
return the P50,000 he was able to collect to the common fund of the
partnership and then Louie and Joseph should divide the amount 50%
or P25,000 each.

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 HOW ARE PARTNERSHIP PROFITS OR
LOSSES DIVIDED AMONG THE PARTNERS?

1. Distribute the profits and losses according to the agreement of the

parties:
2. If there is no agreement, distribute the profits and losses among
the capitalist partners according to their capital contribution;
3. If there is no agreement, give the industrial partner a just and
equitable share of the profits under the circumstances.
4. An industrial partner shares in the profits but DOES NOT SHARE
IN THE LOSSES (1797). VERY IMPORTANT
5. Any stipulation that one partner will not share in the profits or
losses is VOID. (1799).

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 WHY DOES THE INDUSTRIAL PARTNER
NOT SHARE IN THE LOSSES?

Since the industrial partner does not contribute any money

to the partnership, he shares in the profits but not in the
losses. If he has worked diligently for the partnership, but
despite this there are still losses, he already did his share.

An industrial is like an employee of the partnership insofar

as losses are concerned.

Kasama sa kita, hindi kasama sa lugi.

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 DESIGNATION OF SHARE OF
PROFITS AND LOSSES
The partners may assign to a third person the designation
(computation) of their share in the profits and losses of the
partnership.

EXAMPLE: Dr. Joseph, Dr. Timmy and Dr. Clarence operate a

medical partnership. They entrusted to SGV and Co the task of
determining the profits and losses of the partnership. They did
this so it is an impartial party who will do the accounting.

The designation of profits and losses can be made to a third

person BUT NOT to another partner. This is to guarantee there is
no bias or favoritism.

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 MANAGING PARTNER

The managing partner appointed in the Articles of Partnership

may execute all acts of administration despite opposition of the
other partners, unless he acts in bad faith. The power of the
managing partner may be revoked for a just or lawful cause by
majority vote of controlling interest in the partnership.

The managing partner appointed AFTER the partnership is

formed may be removed at any time and for whatever reason
(1800).

Note: Mahirap alisin ang Managing Partner na appointed sa

Articles of Partnership. Dapat may just or lawful cause.

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 POWERS OF THE MANAGING PARTNER

The managing partner may perform all acts of administration

but not acts of ownership.

Acts of administration include all necessary and corollary

powers to carry out the purpose of the partnership. These
include:

- hiring, managing and firing employees;

- buying and selling items for the partnership;
- lease or rental of property;
- all transactions in the normal course of business

For acts of ownership, get the consent of partners.

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TWO OR MORE MANAGING PARTNERS

In case of disagreement among the managing partners, the

matter shall be decided by a majority vote of the partners
(1801).

TIP 1: Unless necessary, do not appoint multiple managing

partners to avoid disagreements and so as not to confuse the
general public. There should be unity of command and direction.

TIP 2: Two or more managing partners may be appointed if the

partnership operates in various locations. One Managing Partner
for Metro Manila, one Managing Partner for Metro Cebu and one
Managing Partner for Metro Davao.

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WHEN NO MANAGING PARTNER IS APPOINTED

When no managing partner has been agreed upon, all of

the partners shall be considered managers or agents and
can bind the partnership (1803). In case of disagreement
the controlling interest in the partnership decides the
matter.

However, the consent of all the other partners is required if

important alterations to real property of the partnership is
needed. If this consent is not given by some partners, the
other partners may go to court.

TIP: It is always best to appoint a managing partner to

avoid disagreements and so the partnership will have a
“face”.

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